| Question | b. If the central bank wants to use monetary policy to reverse a 10% shock to AD, it will have to raise money growth by 10%. Now draw two more AD curves on the figure above: â??Fed reacts to false shockâ? (FR-F to keep it short) and â??Fed reacts to true shockâ? (FR-T). c. After the central bank overreacts to the exaggerated news reports of economic calamity, what is the final result: Will real growth be higher or lower than before the shock hit? Will inflation be higher or lower than before the shock hits? |
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| Subject | business economics |
